U.S. equities closed mixed, with the Dow down 0.70% and the Nasdaq up 0.12%, as fading optimism for Fed rate cuts and weak market breadth weighed on investor sentiment. Despite a modest rebound in technology stocks, led by Micron's over 6% gain, concerns persist regarding extended valuations in the AI sector following Oracle's recent decline. The probability of a December rate cut has fallen to 51% amid sticky inflation, challenging the bullish narrative for mega-cap tech and prompting a shift away from risk-on positioning. With most sectors declining, excluding Energy and Utilities, market participants are closely watching Nvidia's upcoming earnings report as a potential catalyst for tech and broader market direction.
U.S. equities closed mixed, reflecting growing tension between fading optimism for Fed rate cuts and shaky technical underpinnings, with the Dow down 0.70% and the S&P 500 slipping 0.10%, while the Nasdaq edged up 0.12%. This indecision follows Thursday's significant sell-off, indicating a lack of conviction in current market movements. Technology led a modest rebound, gaining 0.49%, driven by strong performances from Micron (+6%), DoorDash (+5%), and Fortinet (+1.5%). However, the AI trade has lost some luster following Oracle's steep drop, raising concerns about capex-heavy business models and extended valuations, despite Citi's indicator suggesting the broader tech trend remains intact with only Meta trading below its 200-day moving average. Market breadth remained weak, with most other sectors, including Materials (-0.87%) and Financials (-0.79%), in the red, while Energy (+0.68%) and Utilities (+0.45%) showed resilience. The primary macroeconomic headwind is the sharp decline in Fed rate cut expectations, with the probability of a December cut falling to just over 51% from 95.5% a month ago, according to the CME FedWatch Tool. This shift, driven by sticky inflation and hawkish Fed commentary, is challenging the bullish narrative tied to aggressive positioning in mega-cap tech and AI, leading traders to question the timing of policy support. Nvidia's upcoming earnings report next week is identified as a pivotal event, potentially restoring confidence in the AI-led growth story and influencing broader market direction. Fundstrat's Mark Newton highlighted critical technical levels at 6,631 for the S&P 500 and 599 for the Nasdaq 100 ETF (QQQ), a break below which could signal deeper volatility, although the overall trend remains broadly bullish despite soft breadth and cautious sentiment.
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